Abstract

The aim of this study is to shed light on the movements of the mark-up rate for the case of Turkey following trade liberalization. For this purpose, first the relationship between labor and non-labor costs that lies behind the movements of the mark-up rates is analyzed, and second, the effect of trade liberalization on mark-up rates is tested. The trade-off between labor and non-labor costs is analyzed based on a model, which assumes that prices are set by a mark-up over average variable costs. The paper also tests the effect of international trade on the mark-up rate and the effect of the exchange rate via its effect on competitiveness and input costs using the panel data for the sub-sectors of private manufacturing industry. The most striking result of this analysis is the absence of any strong link between foreign trade and mark-up rates.